Does Xero work for NZ trust accounting?

The short answer is no. Xero is a general-purpose accounting platform and it cannot meet the specific requirements of NZ trust accounting under the Lawyers and Conveyancers Act. Configuration and workarounds will not fix this. The regulatory obligations placed on NZ law firms require software built specifically for the task.

Why Xero falls short of NZ regulations

NZ trust accounting is governed by a set of obligations that go well beyond standard bookkeeping, and none of them were in scope when Xero was built.

Monthly TAS certificate

Under s115 and Regulation 17, the trust account supervisor must file a monthly trust account statement certificate with NZLS by the 10th working day of the following month. This is not a general reconciliation report. It is a specific document with a specific structure and format required for NZLS submission. Xero has no mechanism to produce this.

Three-way reconciliation

Every month, three figures must agree: the bank statement balance, the trust cash book, and the total of all client matter ledger balances. This is structurally different from a standard bank reconciliation. Most accounting platforms built for general markets handle the bank reconciliation leg. They do not handle the three-way structure natively, and Xero is no exception.

IBD handling under s114

Where it is practicable to do so, client funds must earn interest, and that interest must be allocated per client. This requires tracking client funds in interest-bearing deposit accounts separately from the general trust account and correctly allocating interest across individual matters. This workflow was simply not in scope when Xero was built.

Quarterly certificates

Firms must file quarterly certificates with NZLS covering IBD interest and related matters. Xero cannot produce these in the format NZLS expects.

NZLS Inspectorate readiness

Since July 2024 the NZLS Inspectorate has been conducting reviews using Audit Assistant. Your system needs to produce reports that map cleanly to what inspectors expect to see. Even if your underlying data is correct, reports in the wrong format create friction in inspections and slow the process down. Purpose-built NZ trust accounting software accounts for this. Xero does not.

The misconception I see most often

When firms are going through a practice management system migration, a common assumption is that everything needs to live in one place. Either the new cloud PMS handles everything, or Xero handles everything. This is the wrong framing.

The standard setup for modern cloud practice management systems in the NZ market is a split: trust accounting stays in the PMS, and the general ledger sits in Xero or another cloud accounting platform. Ideally the two systems integrate, giving you a complete view without duplicating data entry.

And that split is the right architecture. Each system does what it was built to do.

What firms get caught out by during migrations

Where I do see firms run into trouble is not with trust accounting in Xero specifically, but with assumptions about what the new PMS will cover. In at least one migration I have been involved with, the firm focused heavily on the trust accounting side of the move and did not fully account for the general ledger. When they arrived at the new system, they discovered the general ledger was not part of the core offering and had not been planned for. The result was running the legacy PMS and the new PMS side by side until the general ledger could be migrated to Xero. It took longer than it should have.

The right structure for a NZ law firm

Trust accounting belongs in your practice management system. That is where client matter ledgers, three-way reconciliation, TAS certificates, IBD handling, and NZLS reporting all live. Your general ledger (income, expenses, GST, payroll) belongs in Xero or an equivalent cloud accounting platform. Where possible, the two should integrate so your accounts team is not re-entering data manually.

This is the architecture most established cloud PMS vendors in the NZ market are built around. It is worth confirming this explicitly with any vendor you are evaluating. If you are at the stage of comparing your main options, our OneLaw vs LEAP comparison covers how the two most common NZ systems handle trust accounting and where they differ.

What to ask your PMS vendor before you commit

The most important thing to understand before signing with a new PMS is what the day-to-day will look like for your trust accounting team. Migrations represent two layers of change at once: a new system to learn, and a new relationship between that system and your general ledger. For a trust account supervisor who has spent years working in a single platform where everything lived in one place, this shift in workflow is significant.

Ask your vendor to walk you through what a typical month looks like for the trust accounting team specifically. Not a sales demo of features. An actual walkthrough of how a TAS certificate gets produced, how three-way reconciliation works, and how IBD is managed. If they cannot show you this in NZ-specific terms, that is a signal worth taking seriously.

You should also ask how the integration with Xero works in practice, how your team will interact with it day to day, and what happens when there is a discrepancy between the two systems. Get reference firms — NZ firms in a similar practice area — and speak to their trust account supervisors directly.

Getting independent advice

Valley IT works with NZ law firms on technology decisions including practice management system selection and migration planning. If your firm is evaluating cloud practice management systems and wants an independent view on how the trust accounting and general ledger pieces fit together, we can help you ask the right questions before you commit.

To talk through your situation, book a free 30-minute consultation or call 0800 824 848.